Jan. 30 (Bloomberg) -- A sharp decline in retail stocks
since Black Friday provides an opportunity for investors still
bullish on U.S. consumer spending.

The SPDR Standard & Poor’s Retail Exchange-Traded Fund --
made up of Wal-Mart Stores Inc., Amazon.com Inc. and 100 other
companies -- has lagged behind the SPDR S&P 500 ETF by 8.1
percentage points since Nov. 29, the day after Thanksgiving and
kick-off to the traditional holiday shopping season. In two
months, shares of retailers have erased about 50 percent of the
relative gains of the prior 11 months, when this group led the
broader market by 15 percentage points.

The sell-off in the retail ETF has been “unbelievably
swift,” though it wasn’t accompanied by a similar deterioration
in hiring and income growth, said Timothy Ghriskey, who helps
oversee $1.5 billion as the chief investment officer at Solaris
Asset Management LLC in Bedford Hills, New York. Rather, these
two primary drivers of consumption were showing improvement,
while holiday sales were “broadly in line with modest
expectations.” Retail stocks “present an opportunity for
investment because the consumer isn’t falling off a cliff.”

Total sales in November and December rose 3.8 percent from
a year ago to $601.8 billion, compared with a projection of 3.9
percent, according to the National Retail Federation. Meanwhile,
researcher ShopperTrak said spending grew 2.7 percent, higher
than its estimate of 2.4 percent.

Job Growth

U.S. employers added an average of about 182,000 workers to
payrolls each month in 2013, based on figures from the Labor
Department. That’s just 0.3 percent below the 2012 average, the
highest since 2005. Disposable personal income, the money left
over after taxes and adjusted for inflation, averaged 0.2
percent growth in the six months through November, according to
the most-recent data from the Commerce Department, after
averaging no growth in the previous six months.

While the recent weakness in the retail group has been
marked by some “pretty dramatic losses” -- Best Buy Co.’s
almost 41 percent plunge and Express Inc.’s 30 percent decline -
- there still are attractive options, Ghriskey said. He
highlights outdoor sporting-goods chain Cabela’s Inc., which has
risen 7.1 percent, as one company he holds that’s bucking the
ETF’s recent performance trend.

Negative Sentiment

Even with a lot of “negative sentiment” about the holiday
season, the sell-off in the ETF isn’t necessarily a harbinger of
trouble for the U.S. economy or consumer spending, said Dave
Lutz, head of ETF trading and strategy at Stifel Nicolaus & Co.
in Baltimore. Rather, it illustrates that investors must be more
selective about stocks.

“There are systemic changes going on in the marketplace
that favor companies with a robust online presence,” Lutz said,
adding this “sea change” is hurting retailers very dependent
on the bricks-and-mortar model.

Nonstore holiday sales -- an indicator of online and e-commerce shopping -- grew 9.3 percent in November and December
to $95.7 billion, the retail federation said.

Lutz points to Netflix Inc. and Zappos.com Inc. as
successfully taking market share from traditional retailers,
while Amazon -- the giant in this industry segment -- is doing
“absolutely great.” Sales for the Seattle-based company were
buoyed by a shopping season marked by six fewer days between
Thanksgiving and Christmas, as well as cold weather that kept
many consumers at home, he said.

Its stock closed at $384.20 yesterday and is about 5
percent below a record high of $407.05 set last week.

More Selective

Investors are becoming more selective after the retail ETF
had “a tremendous run,” outpacing the SPDR S&P 500 ETF by 312
percentage points in the five years since it bottomed in
November 2008, according to Walter “Bucky” Hellwig, who helps
manage $17 billion at BB&T Wealth Management in Birmingham,
Alabama.

“Money can still be made by investing in these retailers,
but betting on the sector has gone away,” he said.

Companies that struggled don’t have a robust online
presence and relied too much on heavy promotions during the
holiday season, which took a toll on profit. At least six
retailers -- including Pier 1 Imports Inc. and L Brands Inc. --
cut forecasts in recent weeks.

Falling Shares

Shares of home retailer Pier 1, based in Fort Worth, Texas,
have fallen 18 percent since Jan. 8, the day before it said
earnings in the quarter ending March 1 will be 47 cents to 52
cents a share, down from a previous forecast of at least 60
cents. Columbus, Ohio-based L Brands, owner of Victoria’s Secret
and Bath & Body Works, has tumbled 13 percent since the same
day, before it said fourth-quarter profit will be about $1.60 a
share, down from a previous forecast of at least $1.67.

If the labor market were to deteriorate -- particularly
following a slowdown last month -- Hellwig might become more
concerned about spending across all channels. Employers added
74,000 workers to payrolls in December, the fewest in three
years and less than the most pessimistic projection in a
Bloomberg survey.

“If the fundamentals for consumers weaken, that will have
a negative impact on retail sales,” Hellwig said.

January hiring, scheduled to be released Feb. 7, rebounded
to 180,000, according to the median estimate of economists
surveyed by Bloomberg.

Gift-Card Spending

After “a tough season” that many investors were
expecting, Lutz said he’s monitoring spending in January and
February. That’s because a lot of consumers purchase items in
the weeks following Christmas with gift cards, so shopping may
revive, giving retailers a post-holiday boost.